Dollar Failed to Meet Powell’s Interest Rate Hikes, Worries on Tariffs Still There

 

Fundamental View

Jerome Powell, the newly installed Federal Reserve Chairman, raised the US interest rates from 1.5% to 1.75% in his first meeting with the Committee. This is considered to be the first hike of 2018. In his first congressional testimony, the Fed Chairman stated that this year the economy was stronger than expected in December 2017 and he regards the gradual increase of interest rates as a measure to avoid an “overheated economy”. Moreover, the FED will probably try to raise interest rates more intensively so that to allow the economy to keep expanding without overheating.

Markets have been anticipating this annulment, so the rise of interest rates was not something unexpected. As a result of anticipating this annulment, the dollar index fell from 90.004 to 89.065 within almost 24 hours. However, it is remarkable that the dollar seems to be in a defensive mode and has not presented any reaction after the announcement of the interest rates by the FED Committee. The US dollar index is trading at 89.37 at the time of writing.

In addition, members of the Committee forecasted that three hikes might occur within 2018. However, they revised their projections for 2019 and 2020. The Central Bank presented the probable scenario that in 2019 the interest rates would be around 2.9% and 2.7% in 2020. Moreover, interest rates are expected to rise to 3.4%.

A significant fact that could probably decrease the value of the US Dollar remains Donald Trump’s US tariffs. The upcoming effect of US tariffs raised concerns to investors about a potential trade war. Following the FED meeting, investors tend to pay attention to Trump because he will sign a memo this Thursday for imposing tariffs on Chinese imports. Since investors fear a trade war between the USA and China, the two largest economies in the world, their investment strategies tend to be adjusted to the market conditions.

See Next:   Is US Dollar Euphoria Started to Fade Out?

On Wednesday 20th of March, Robert Lighthizer, the US Trade Representative stated that these tariffs would probably hit China’s high technology sectors. The effects of Trump’s tariffs could backfire by restricting Chinese investments in the US. Furthermore, these moves could trigger a countermeasure war between the USA and China.

Technical Analysis

On the daily time frame, it could be noticed that the dollar index may continue to heading down. The fact that the price seems to be out of the cloud and crossing the lines Tekan Sen and Kijun Sen could be a clue to look for potential bear signals.

We could consider looking for potential bear signals if Tekan Sen crosses the Kijun Sen and enters in a “bear formation mode”. Furthermore, we could check whether the Chikou Span line is out of the price and heading down.

The Kumo cloud seems to be strong with a spike at the end. Based on the Ichimoku Kinko Hyo guidelines, we might expect that it might continue to be in a bearish mode.

In the 1H time frame, it could be refined a potential development of a bear signal, given that the price touches the Kijun Sen line.